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Date
Rule
801.1(f)
Staff
Michael Verne
Response/Comments
It doesn't matter whether the right to appoint directors is in the convertible note or is a contractual right, that alone would not make it a voting security. Generally, the only time that a convertible security is deemed a voting security prior to conversion is if the security carries an irrevocable proxy to vote the underlying shares as if the conversion had already occurred. The only other instance I can think of in recent times is where an investor held all of a class of securities that on its own could elect one director when converted and voted, and the security also contained a right to designate one director prior to conversion.

Question

From: (redacted)
Sent: Friday, October 03,20085:36 PM
To: Verne, B. Michael

Subject: HSR Question

Attachments: DOC_000014fb.pdf;DOC_00001507.pdf

Mike, I though an email would be the easiestway to ask for clarification on an informal opinion. I found the attached InformalOpinion 0503024, where a convertible notes coupled with the right to appointdirectors was not treated as voting securities. However, it is unclear to me ifit was because the right to appoint was not in the actual convertible note, orbecause it was a contractual right to appoint directors and did not involve aproxy or a voting agreement. Could you clarify that for me? What raised thisquestion was Informal Opinion 0602018, also attached, which states acontractual right to appoint does not change a convertible note into a votingsecurity. This latter opinion seem to run counter to Interpretation 66 in theFourth Edition of the Premerger Notification Manual which mentions thecontractual right to appoint directors.

I am working on a transaction with a factpattern similar to Informal Opinion 050324 but it involves a voting agreementand not the contractual right to appoint. The voting agreement is in the NotePurchase Agreement and not in the actual Convertible Note.

Thanks in advance!

About Informal Interpretations

Informal interpretations provide guidance from previous staff interpretations on the applicability of the HSR rules to specific fact situations. You should not rely on them as a substitute for reading the Act and the Rules themselves. These materials do not, and are not intended to, constitute legal advice.

Learn more about Informal Interpretations.

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